Bitcoin/USD could be worth $1,300: BofA Merrill Lynch

on Dec 10, 2013
Updated: May 24, 2024

In its first report on bitcoin, Bank of America Merrill Lynch’s head of currencies research David Woo writes,

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“Assuming Bitcoin becomes (1) a major player in both e-commerce and money transfer and (2) a significant store of value with a reputation close to silver, our fair value analysis implies a maximum market capitalization of Bitcoin of $15bn (1BTC = $1300).”

On the first assumption, Woo underlines that the market capitalization of all bitcoins has surpassed that of Western Union (see chart below), best known of the three top players in the ex-bank money transfer industry and accounting for about 20 percent of the total market share.

If the crypto-currency overtakes Moneygram or Euronet and becomes one of the top three players in this niche, “Bitcoin’s market capitalization could be viewed, with a little leap of faith, as its enterprise value”, says Woo.

With the average market cap of Western Union, MoneyGram and Euronet at about $4.5bn, Woo puts this number into the equation for the maximum value of all bitcoins, representing its role as a money transfer tool.

Using the average velocity of money in the US over the past 10 years at 0.04 and “given the assumption that Bitcoin will grow to account for the payment of 10 percent of all on-line shopping”, Woo calculates that “this would suggest that US households would want to have a balance of $1bn worth of Bitcoins”.

The estimate is based on last year’s total on-line sales in the US and the assumption that the velocity for e-commerce sales is the same as the velocity for all US household spending.

“If we were to assume the same degrees of penetration of e-commerce for the rest of the world and that spending by households outside the US has the same velocity, we get to $5bn worth of Bitcoins for the total desired cash/noncash balance of global on-line shopping.”

Woo stresses that this is a very rough estimate, which is based on a lot of critical assumptions.

On the second criterion, Woo assumes that bitcoin will eventually acquire the status of silver as a store of value because “the reputation of gold as a unique and safe store of value has been growing for the past ten thousand years”. This suggests that bitcoin’s value in its role as a store of value could reach another $5 billion.

As a result, Bank of America Merrill Lynch arrives at the maximum fair value of one bitcoin at $1,300.


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